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2Q20 Quarterly Letter

2Q20 Quarterly Letter - The Coronavirus Stock Market

What can I say in my quarterly letter to Curran’s clients and friends that has not already been said?   We all know the answer to the question is not much.

Over the years I have had numerous conversations with our clients that have begun with the question: Tom, what do you think the market will do over the next few months? There are numerous versions of the question but they all are asking me to make a forecast.

You know I try to say: I do not know exactly but I am always optimistic about the long term. You see I have learned to never time the market.  If the Coronavirus has taught investors anything, it is never time the market.

I have told you before but I must remind you again, my all-time favorite quote about timing the stock market comes from Warren Buffet:

“The stock market is a device for transferring money from the impatient to the patient.”

In March the market reacted swiftly and dropped precipitously to news of increasing Covid 19 death and infection rates. People panicked and many sold stocks at very low prices.  In 23 trading days the S&P 500 declined 35%. About 3 months after the panic began the market was about even.

When it comes to investing it is wise to know what you will do before it actually happens. Otherwise panic takes its toll on your investment performance. We believe our portfolio strategies are designed to withstand bad news.  Our experience and results confirm our beliefs.

To be patient means understanding and acknowledging the stock market, measured by the S&P 500, has averaged 10% annual returns since 1928.  Jeremy Siegel calculated that stocks have averaged a total return of about 10.2% for 200 years ending 2001.  Since 2000 the S&P 500 has an annual return of about 6% through June 30, 2020.

Keep in mind the last 18 years includes the aftermath of 9/11, the decade of the ought’s with returns of 0%, the financial crisis and Coronavirus.

The impatient investor is probably not as fully invested in stocks as they should be. The patient investor has enjoyed a quadrupling of their investment values in stocks measured by the S&P 500 since March of 2009. In addition patient investors have likely been adding to their holdings that have further enhanced their returns.

My view is 6% is surprisingly good.  Most investors would be more than pleased if their portfolios enjoyed a comparable return over the past 20 years. But sadly many, probably most, have not. Instead too much has been invested in various fixed income investments and real estate where historical returns do not compare to stocks.  Even during the last 20 years when stocks have significantly under performed their long term average of 10%; they still significantly outperformed long term average returns for cash and bonds. Most investors readily admit 6% annualized looks quite good to what was earned in cash, bonds and real estate.

Instead of patiently holding and committing to the long term, combinations of fear and impatience result in selling too soon and delaying and procrastinating buy decisions. It causes a lack of commitment.  We all know that not much good can come when commitment is lacking. While the avoidance of volatility is comforting, it is not financially rewarding. Most people cannot afford the opportunity costs that result from avoiding volatility. Absolute patience is required to be a successful investor.

Warren Buffet very wisely understands why patience is critically important.

I also believe it is important for investors to hold their investments no matter what the news. It is an essential characteristic of successful investors. When the Coronavirus panic struck the stock market, Curran held and bought more shares in companies we previously purchased.

Let’s review again the Curran Quality Index [CQI] and how we define quality. We believe holding highest quality stocks benefits investors both in the short term and the long term.

One of our goals is to define quality for investors. We say Curran is Defining Quality.

We define quality based on the following:

Quality companies have less than 35% debt.

  • Quality companies have returns on equity greater than 10%.
  • Quality companies rarely lose money.
  • Quality companies usually sustain profit margins greater than 10%

When we apply our quality requirements to more than 10,000 publicly held companies in the United States, we find about 500 to be reasonable buy candidates. When we include all possible candidates in our universe of stocks, the number grows to about 1000.  But the further we stray from the top 200 we find returns become more volatile and results become more erratic.

Why is it important?

Curran Core Growth began in 1998.  Since 1998 there have been three confirmed bear markets.

In those bear markets Curran Core Growth declined less and fully recovered sooner than the S&P 500.

The first began in March 2000 and ended in October 2002. Core Growth’s cumulative gross return declined 21.36 percentage points less and recovered 23 months sooner.

The second bear market began in October 2007 and ended March 2009. Curran’s Core Growth’s cumulative gross return declined 9 percentage points less and recovered 7 months sooner.   

In March of 2020, bear market conditions were met. The S&P 500 total return dropped 35% from its February 19, 2020 high to its March 23, 2020 low. And again Curran Core Growth declined less and recovered faster than the S&P 500.

As pleased as we are about our short-term performance in the past three bear markets, our biggest success has been to provide our investors with superior performance over the long run. 


Thomas J. Curran    Kevin T. Curran, CFA
 CEO & Founder       President & CIO

Curran Investment Management® is Defining Quality®

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.